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The “British spirit” has been invoked to praise the resilience of a populace coping with coronavirus. If that spirit smells of anything, it must be paint thinners, judging from the results of DIY retailer Kingfisher. A surge in home and garden improvements among locked-down Brits lifted first-half UK operating profits 20 per cent above forecasts. Shares are now 30 per cent higher than their pre-coronavirus starting point.
The pandemic is delivering the turnround that successive chief executives failed to produce. Online sales have risen 164 per cent. When stores reopened after lockdown, customers queued around the block.
Second lockdowns in Europe should provide another boost for the business, which owns B&Q in the UK and Castorama in France. A fresh strategy from chief executive Thierry Garnier will be tested after that.
Mr Garnier replaced Véronique Laury in September 2019. He reversed her faltering scheme to cut costs by unifying ranges. He has given divisional managers more autonomy to choose products. Soft furnishings group Dunelm, a rival, credits its own success to strong relationships with suppliers.
A sturdy balance sheet should support reform at Kingfisher. Almost £1.8bn of cash in the bank contributes to £3.7bn of available liquidity. Net debt equal to ebitda over the past 12 months provides further reassurance. The group is repaying £600m of Covid Corporate Financing Facility loans and forgoing further furlough payments, paving the way to resumed payouts.
The UK business benefits from fast-growing Screwfix, a trade counter retailer that non-tradespeople can use. The group’s problem child has been France. Like-for-like sales here bounced back 27 per cent in the second quarter, outperforming the UK due to a longer first-quarter lockdown. But profit margins look weak.
Kingfisher is trading at 13 times two-year forward earnings, above the long run average for the first time since 2018. For the moment, the group looks like a winner from Covid-conscious lifestyles. But keep an eye on progress in Mr Garnier’s native France to see whether his plans are sticking to the walls.
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